China's Cosco II ABS Sails Forth

After spending nearly two years in the pipeline, the second securitization from China Ocean Shipping (Group) Co. (Cosco) has finally been issued.

The $300 million securitization is backed by future receivables generated in 11 different countries from Cosco's shipping operations in Europe and Asia. It was structured to mirror a 1997 securitization done for Cosco.

In that transaction, future receivables were sold through a Cayman Islands special purpose vehicle to a master trust vehicle called Cosco (Cayman) Freight Collection Master Trust, which issued securities backed by the receivables.

The entire issue was privately rated and placed with a single U.S. institutional investor. Chase Securities Inc. arranged the deal, which is the first major future flows transaction to be completed in Asia since the start of that region's financial crisis in 1997.

The deal also is a triumph for Chase, which won the mandate in November 1997. Market volatility in Asia was the main reason behind its long execution, said Paul Burke, Chase's head of global securitized finance in Asia.

"After the financial crisis in Asia, the investor market was understandably nervous about buying a transaction where the majority of obligors were Asian," he explained. "What is more surprising is that Cosco did get done," he added, given that there were mandates for several future flows from Thailand, China and Korea which never surfaced.

Cosco's latest offering also had to cope with the downgrading of the first securitization by Moody's Investors Service in March and of China's sovereign rating by Standard & Poor's in July.

More recently, sources suggested that it had suffered a permanent setback after it failed to obtain a monoline wrap. "As Mark Twain once said, rumors of its death were greatly exaggerated," Burke said.

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